Visa (NYSE:V) Is one of those world-class blue-chip gems that seems to never go on sale. With expectations of a prolonged economic downturn seeming to overtake sentiment that a "U-shaped" recovery was initially likely, I think Visa is a difficult stock to buy too quickly.
We really don't have decent insight into just how long the global economy will be stalled and what this effect will be on economic activity one, two, or even five years out.
Visa's business model is one which is highly tethered to the global economic activity and consumer spending. The company makes the bulk of its highly profitable revenue via transaction fees charged to businesses for transactions. With transaction volumes likely to be impaired for the next few quarters at least, the question is how long investors expect this to continue, and how deep these volume declines will ultimately be during this period of time, currently unknown.
These significant headwinds have not deterred some investors from simply buying the dip, despite an otherwise hefty valuation multiple currently baked into Visa’s share price.
The argument from many bulls is that a shift from cash to plastic globally (particularly in emergency markets which are still largely cash-based) should drive growth in the face of lower overall economic activity.
As more transaction volume takes place online versus in physical locations, transactions which are credit card-based are near 100% online vs. person to person, perhaps boosting credit card utilization rates further. How these competing forces ultimately play out remains to be seen.
However, I do think in the long-term that Visa will be the beneficiary of these secular growth trends, making this stock a buy on future dips. Visa will stay on my watch list.
Invest wisely, my friends.
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